Payroll Management and Compliance in Kenya

Payroll is the function responsible for compensating employees for services rendered within a specified period of time. This is a critical function since for many organizations, salaries and wages form the largest expense and thus is requires working Internal Controls to prevent errors and fraud. Payroll also attracts numerous Tax Audits and Verification exercises as KRA Officials seek to confirm employers’ compliance with relevant statutory obligations. Payroll information is also quite confidential and requires proper management to avoid data leaks or unauthorized access.  

Payroll management involves the following:

  • calculating employee earnings
  • calculating statutory and other deductions
  • paying employees
  • filing necessary statutory returns
  • remitting statutory deductions to various agencies
  • payroll reporting and analysis
  • maintaining relevant payroll documents
  • providing information during external audits, internal reviews and tax audits

Payroll Records and Documents to be maintained in Kenya

In payroll management, employers need to maintain documents relevant to the employees’ earnings and deductions. These include:

  • Employment letters
  • Salary adjustment letters
  • Resignation letters
  • Approved overtime forms
  • Loan deduction forms
  • Mortgage interest and insurance policy certificates
  • Valid Tax Exemption Certificates for Persons with Disabilities

Payroll Processing

This is the task of computing employee earnings, deductions, and net amount payable.

Due to the bulk nature of payroll information, it is important for organizations to automate payroll processing and utilize payroll systems to enhance accuracy in the process. There are various payroll systems within the Kenyan market, both desktop and web based, that employers can utilize to automate their payroll processing.

For SMEs with few employees, payroll processing can be done on excel with the necessary internal controls being put in place to avoid data loss or unauthorized access.  

Employee Payroll Earnings

This is total compensation earned by an employee which is paid by the employer for services rendered during a specified period.

Employee earnings include:

  • Basic Salary
  • Wages
  • Overtime pay
  • Commissions
  • Bonus

Payroll Statutory Deductions in Kenya

Statutory deductions are deductions that employers are mandated by law to deduct from employees’ paychecks. Deductions of these statutory deductions and emitting to the relevant government agencies is mandatory, not optional.

These are:

  1. Pay As You Earn (PAYE) – Income Tax
  2. National Social Security Fund (NSSF) – Retirement Fund
  3. National Hospital Insurance Fund (NHIF) – Hospital Insurance
  4. Higher Education Loans Board (HELB) – Student Loans
  5. National Industrial Training Authority (NITA) – Training Levy*

*NITA Training Levy is not deductible from the employee but is paid by the employer at the rate of Kes 50 per employee per month.

Statutory Deductions Deadlines in Kenya

Employers are expected to remit statutory deductions and file returns by the dates below:

  • PAYE – By 9th of the following month
  • NHIF – By 9th of the following month
  • NSSF – By 9th of the following month
  • HELB – By 15th of the following month
  • NITA – By 5th of the following month

Late filing, late payment, or failure to deduct and remit statutory deductions is deemed an offense in Kenya and employers are held responsible and subjected to hefty fines. All Kenyan employers should be aware that any statutory deductions not deducted from employee paychecks are recoverable from the employers with penalties and interest.  

Employee Payslips

A payslip is a document issued by an employer to an employee indicating the earnings, deductions and net amount payable for a given period. Below is a Sample Payslip with Kenyan Employment Taxes and Statutory Deductions.